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Continuous Underwriting is Underutilised in the Life
Insurance Industry
December, 2017
By Stuart Hayman, Lead Business Consultant, Sapiens Insurance Practice [email protected]
Continuous Underwriting is Underutilised in the Life Insurance Industry
www.sapiens.com
Table of Contents
1. Executive Summary ............................................................................................................................... 1
2. Traditional Underwriting’s Limitations in the Modern Era ................................................................... 2
2.1 What Exactly is Continuous Underwriting? .......................................................................... 2
3. Factors Powering Continuous Underwriting ......................................................................................... 3
3.1 The Internet of Things (IoT)/Wearables................................................................................ 3
3.2 Customer Engagement Platforms ......................................................................................... 3
3.3 Social Media .......................................................................................................................... 4
4. Mini-Case Studies .................................................................................................................................. 4
4.1 Royal London ........................................................................................................................ 4
4.2 Prudential Financial .............................................................................................................. 5
4.3 AllLife..................................................................................................................................... 5
5. The Benefits of Continuous Underwriting ............................................................................................ 5
5.1 Value Propositions ................................................................................................................ 5
5.2 Minimising Risk ..................................................................................................................... 6
5.3 The Impact on Price and the Bottom Line ............................................................................ 6
5.4 The Big Picture ...................................................................................................................... 6
6. Essentials for Success ............................................................................................................................ 7
6.1 Advanced Analytics ............................................................................................................... 7
6.2 Strong Policy Administration System and Integrated Digital Suite ....................................... 7
7. The Future ............................................................................................................................................. 8
8. About the Author .................................................................................................................................. 8
9. About Sapiens ....................................................................................................................................... 9
Continuous Underwriting is Underutilised in the Life Insurance Industry
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1. Executive Summary
Life insurance providers have worked diligently to improve
the underwriting process to reduce policy risks. Automated
rule engines have increased the accuracy and speed of
underwriting for a specific point in time, but providers are still
essentially making educated guesses on how a person will age
for the next fifty years. Continuous underwriting will change
this situation by harnessing the tremendous amounts of
customer data generated by the Internet of Things
(IoT)/wearable technology, customer engagement platforms
and social media.
Life insurers will be able to provide a comprehensive,
individualised risk assessment over time, rather than relying
on small and incomplete sets of data to guess how an
individual will age. Utilising this data, insurers can reward
healthy behavior and build a richer underwriting experience
that can be fed back into new products being developed.
Continuous underwriting means that data can be analysed
before, during and after the policy is underwritten, to
minimise insurers’ risk and maximise the customer
experience.
This white paper outlines key business benefits of continuous underwriting for life insurers, including
innovative new pricing models and targeted products, the ability to reward healthy behavior and an
enhanced customer experience. It also details the essentials for successful continuous underwriting.
These include a comprehensive business intelligence solution that can analyse both structured and
unstructured data, and a full digital suite (including customer and agent portals, and a customer
engagement platform). Perhaps most critical is a modern, flexible policy administration system that can
quickly create dynamic insurance products that allow flexible policy terms, based on the continuous
analysis of data.
Continuous underwriting will empower insurers to positively affect their insureds’ lifestyles and to provide reduced underwriting risk. The accurate pricing and new, targeted products that result from continuous underwriting will also increase productivity.
CONTINUOUS UNDERWRITING’S
BENEFITS FOR INSURERS
Continuous Underwriting is Underutilised in the Life Insurance Industry
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2. Traditional Underwriting’s Limitations in the Modern Era
The basic underwriting model has served life insurers (and other types of insurers) well in traditional
markets. But today’s rapidly evolving markets demand a competitive price that will turn a prospective
customer into an actual one in minutes – while still increasing the insurer’s profit margin and reducing
risk, based on the applicant’s probable health outcome.
The last major change in underwriting took place in the mid-1990s, when insurers desired more
sophisticated underwriting processes, but found that their policy administration systems were largely
unable to support them.1 This led to the birth of packaged underwriting solutions and automation,
among other benefits.
Another underwriting revolution is here. The Internet of Things (IoT)/wearable technology, customer
engagement platforms and social media, among other sources, offer insurers a veritable treasure chest
of health-related data that is tracked and updated constantly. Leading insurers are beginning to use
continuous underwriting (mini-case studies are presented later in this white paper) and it is anticipated
that this trend will grow.
2.1 What Exactly is Continuous Underwriting?
‘Continuous underwriting’ describes the process of collecting all potential information about a
prospective insured and then quickly analysing that information to provide insight on both positive and
negative trends before issuing a policy. Post-issue, continuous underwriting supplies the insurer with
information as the insured ages, enabling rewards and discounts to encourage healthy behaviors.
Rewards for healthy behavior have been shown to improve an insured’s lifestyle.
Insurers who were once basically limited to a snapshot of an insured can use continuous underwriting to
make quick and more sophisticated decisions when issuing the policy, measure and track what happens
during the life of the insured and adjust accordingly. Continuous underwriting will improve risk analysis
by exposing patterns, based on the wide array of information that is now available via evolving
technology, including nightly sleep patterns, exercise duration and intensity (daily number of steps,
etc.), and eating habits. All of this data can be used to re-price a product, or develop new, targeted
products. These measures can reasonably be expected to increase profitability and reduce risk, which
would be a win-win for insurers and their customers.
Today’s powerful data streams emanating from the wealth of available information can also be
harnessed by insurers to position themselves and their brand as innovative and customer-centric.
1 ‘Underwriting Technology Matures: The Birth and Rise’, InformationWeek article, May 7, 2013.
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3. Factors Powering Continuous Underwriting
There are important factors that will underpin the rapid rise of continuous underwriting by generating
seemingly never-ending streams of up-to-the-second customer data.
3.1 The Internet of Things (IoT)/Wearables
Sapiens’ eBook, IoTwenty Five: Internet of Things in 2025,2 highlighted the lucrative potential of IoT:
‘There will be 20 billion IoT devices around the world by 2020 and McKinsey Global Institute research
predicts that IoT’s impact on the global economy could reach $6.2 trillion by 2025’.
This isn’t just a rosy future vision…information gathering is already greatly improved compared to the
early days of IoT. Devices such as the Fitbit have gone mainstream. Insurers are reaping benefits from
integrating with wearable technology and the ‘connected self’ as part of the overall IoT. As with social
media and customer engagement platforms, wearable technology (wearables) is generating helpful
information that can be utilised for improved underwriting. Health coverage decisions can be
formulated with the latest and most accurate information, reducing insurers’ exposure to risk (which
will of course lower their costs). As an added benefit, usage-based insurance (UBI) programs, based on
data from wearables, enable insurers to provide more personalised programs and enhanced customer
service.
3.2 Customer Engagement Platforms
Life insurance is a low-touch industry, making it challenging for providers to obtain worthwhile customer
data without shifting from ‘today’s death-benefit paradigm to a high-touch, interactive, digital dialogue
with their customers’, as explained in Sapiens’ eBook: Engage in a Winning Strategy! Customer
Engagement’s Benefits and Challenges for Life Insurers.
Getting customers to sign up for branded customer engagement programs generates a wealth of data
on life insurers’ client base (and the information is proprietary to insurers). If the engagement program
syncs with wearable technology, there will be an even greater reservoir of data and a more accurate,
continuous snapshot. The insights mined from this data can be used proactively to influence and fuel
continuous underwriting processes.
By personalising insurance to policyholders’ needs, life insurers can cross-sell based on customer life
events, encourage better health for policyholders and provide discounts based on activities.
2 ‘IoTwenty Five: Internet of Things in 2025’ eBook, Sapiens.
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3.3 Social Media
As we wrote in a previous Sapiens white paper, Successful Social Media Strategies for Insurers,3 it’s not
news to report that we are living in a connected, digital world. There is probably not a single person
reading this who isn’t on either Facebook, or LinkedIn. And yet, because insurers are still experiencing
some difficulties with social media – such as determining which information posted by users is reliable –
the myth that providers can’t yet make good use of social media stubbornly persists in some quarters.
But the application of advanced analytics to social media is already beginning to disrupt the traditional
underwriting process as users openly broadcast the minutiae of their lives
It’s true that privacy issues are a concern and insurers must be careful to comply with all relevant
regulations, but expect social media to play an increasingly important role in the underwriting process as
time passes.
4. Mini-Case Studies
As noted earlier, wide-spread adoption of continuous underwriting has not yet occurred, but there are a
few notable insurers who are doing interesting things in this space around the globe.
4.1 Royal London
Royal London –– launched a ‘Diabetes Life Cover’ specifically for people with type 1 or type 2 diabetes.
The customer journey is underpinned by the Kalibre insurtech platform, which is supported by
continuous underwriting and features an innovative risk assessment approach. The platform improves
the application acceptance process from a period of weeks to less than an hour, says Royal London.4
‘There is built in flexibility to reduce premiums by up to 40% to reflect how well the customer is
managing their diabetes by simply sharing their annual HbA1c test result. Premiums are guaranteed
never to rise higher than the starting premium to give clients certainty that they will be able to maintain
their cover’, according to the company’s press release.
This real-time, robo-underwriting process is expected to launch to a wider market and is one to watch in
the future.
3 ‘Successful Social Media Strategies for Insurers’ white paper, Sapiens, January, 2017. 4 ‘Royal London Launches Pioneering Life Cover for People With Diabetes’ press release, Royal London, April 25,
2017.
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4.2 Prudential Financial
Prudential Financial – a provider of a variety of products and services, including life insurance, annuities,
retirement-related services, mutual funds and investment management – ran a smoking cessation pilot
(it started on June 12, 2017) that targeted approximately 4,000 term customers with policies in force for
over two years across all sales channels in the following U.S. states: Delaware, Georgia, Indiana,
Massachusetts, Michigan, Minnesota and Texas.5
Customers who have either smoked in the past year, or who returned lab results that indicated the
presence of nicotine in their blood, pay ‘smoker rates’. They are eligible to request a reduction to non-
smoker rates, but must call Prudential or a financial professional, plus provide evidence that they have
quit. ‘This effort will leverage existing capabilities and processing to consider how we may expand
continuous underwriting concepts to help strengthen existing customer relationships, extend our value
proposition, and cultivate customer advocates’,6 according to Prudential.
4.3 AllLife
AllLife is a South Africa-based company that offers life coverage for those living with HIV and diabetes. It
gets clients to adhere to a specific treatment plan and then offers ‘a continuous underwriting approach
to provide immediate pricing, issue a policy, and manage risk through its continuous contact with the
customer, including periodic tests to verify the treatment's efficacy’.7 If this strategy and approach
sound familiar, it’s because Royal London (see above) is leveraging AllLife’s technology platform.
5. The Benefits of Continuous Underwriting
Continuous underwriting offers a wealth of benefits to life insurers.
5.1 Value Propositions
A report by Celent8 looked at continuous underwriting’s top value propositions. Insurer shareholders
ranked first place in the survey, based on the rationale that continuous underwriting would lower rates,
which should translate to a greater volume of sales. Next up was ‘tech-savvy perception’, which would
likely help life insurers market to generations Y and Z and improve their brands. Third place was ‘fair
5 ‘Prudential’s Smoking Cessation Pilot’ frequently asked questions (FAQs), Windsor Insurance. 6 Ibid. 7 ‘Insurtech Leader AllLife Raises Funds to Expand Coverage to People Living with Diabetes and HIV’ PR, PR
Newswire, May 3, 2017.
8 ‘Life Insurance Underwriting (R)evolution in the Age of the Internet of Things’ report, Celent, November 24, 2014.
Continuous Underwriting is Underutilised in the Life Insurance Industry
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pricing to insured’, which would presumably improve the customer experience and expand the
provider’s customer base via attractive offers (more on pricing in a moment).
5.2 Minimising Risk
Unlike the not-so-good-old-days described in the first section of this white paper, insurers today don’t have to wait to get scraps of information during the renewal or claims processes. They can become aware of risk factors as they appear and try to work with the insured to minimise or eradicate them. Better yet, they can attempt to prevent potential negative outcomes from occurring in the first place.
5.3 The Impact on Price and the Bottom Line
An interesting report by Capgemini9 outlines how continuous underwriting can help drive the insurance
value chain. It predicts that new pricing models, based on continuous data analysis, will emerge. These
models could include premium pricing options that factor the degree to which a policyholder shares
personal data. Bonus programs for meeting set targets and flexible premiums are also highlighted in the
report.
Life insurers will be equipped with a tremendous amount of data-points that will shape their strategy on how much capital to reserve (and it’s important to note that the available reserve generated by accurate pricing can be invested). Real-time, granular data and frequent touch-points, along with statistical evidence and superior algorithms, will significantly improve the risk-reserve probability. As an ancillary benefit, the more insurers can penetrate customers’ worlds, the more they can cross/up-
sell and target family members with innovative, packaged deals.
5.4 The Big Picture
Continuous underwriting will empower insurers to positively affect their insureds’ lifestyles and to provide reduced underwriting risk. The accurate pricing and new, targeted products that result from continuous underwriting will also increase productivity.
9 ‘Wearable Devices and Their Applicability in the Life Insurance Industry’ report, Capgemini, January 18, 2016.
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6. Essentials for Success
6.1 Advanced Analytics
A considerable amount of space in this white paper has been dedicated to discussing how continuous
underwriting is powered by the tremendous amounts of data that are being generated every second.
But many insurers are currently unable to process that data quickly and efficiently, and thus they can’t
draw actionable insights from it!
Today’s insurers are drowning in data. They are trying to use this data to formulate their companies’
strategies, decide which new propositions to bring to market and obtain crucial business intelligence.
Without effective analytics, insurers are reactive and cannot effectively prepare for new trends,
including continuous underwriting.
Information constantly flows from the diverse sources outlined: IoT/wearables, customer engagement
platforms, social media, etc. The challenge is how to incorporate these data streams into data-driven
decision processes. This is only possible with a modular, highly innovative business intelligence solution
specifically designed for the insurance market. An effective system should empower business users to
easily and rapidly draw business conclusions and insights from raw data, via self-service analytics.
6.2 Strong Policy Administration System and Integrated Digital Suite
If the business intelligence system discussed above isn’t integrated with a life insurer’s policy
administration system and full digital suite, there will likely be trouble ahead. The insurer will have to
generate reports with information manually generated and collected from diverse sources. This will be
time-consuming, inefficient and often ineffective. Competitors with a fully integrated and functional BI
system who aren’t facing these constraints will likely offer a better customer experience and assess risk
more accurately.
But effectively pairing an advanced analytics offering with a policy administration system requires
intricate knowledge of the source system and the data warehouse models. Because data is granular and
spread out – and data from other sources will be used to calculate risk, often from a data warehouse –
integrating it with business models and aggregating can be a complicated process.
A strong and integrated core is necessary for life insurers to take the insights they have drawn from
the raw data and quickly act on them. Only a modern, innovative policy administration system will
enable the quick creation of dynamic insurance products with flexible policy terms based on the
continuous analysis of data.
Although the IoT era is well underway, some insurers are still finding it difficult to adjust, due to their
existing platforms. It’s difficult enough to capture and process billions of new data points. Only insurers
with a 360-degree view of their customers and complete visibility will be able to reap maximum benefit
from the newly gleaned information. Insurers must be able to act on this high level of understanding by
releasing new products and offers quickly to market. By sticking to a strategic plan and paying attention
to details, insurers can survive and thrive in the fast-paced world of IoT.
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As detailed earlier in the white paper, customer engagement platforms that support wearables are a
valuable tool. They keep the insured engaged with his/her provider, but the interaction needs to
progress beyond that for maximum effectiveness. An integrated digital suite facilitates a closed
marketing loop. Insurers start receiving information from wearables, or their customer engagement
platform, and then quickly begin inputting that new information into their marketing efforts, so they can
adjust strategy based on tangible data and trends. Harvesting actionable information and being able to
respond immediately will help insurers become agile and fulfill the market’s changing requirements.
7. The Future
As amazing as it may seem, we are still likely in the infancy of collecting data on people (and things).
Three Square Market, a technology company in Wisconsin (U.S.), has reported that 41 of its 85
employees agreed to be voluntarily microchipped during a ‘chip party’ at company headquarters. The
chips apparently allow them to open doors, log onto computers or buy snacks by waving their hands.
‘Officials said the data in the microchip is encrypted and does not use GPS, so it cannot be used to track
employees or obtain private information. The company hopes the microchips eventually can be used on
everything from air travel to public transit and storing medical information,’ according to the Chicago
Tribune.10
Surely some enterprising life insurers are considering the idea of asking customers to voluntarily have
chips implanted in exchange for discounts or other benefits. The amount of information collected on
insurance customers will only increase and intensify. Expect continuous underwriting to strengthen as a
trend in the immediate future – the time to prepare for it is now.
8. About the Author
Stuart is a successful executive with over 25 years of experience in Life and Pensions. His most recent
roles have focused on sales and business development, new contract negotiation and solution design.
10 ‘Wisconsin Company Holds 'Chip Party' to Microchip Workers’, Chicago Tribune, August 2, 2017.
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9. About Sapiens
Sapiens International Corporation (NASDAQ and TASE: SPNS) is a leading global provider of software
solutions for the insurance industry, with a growing presence in the financial services sector. We offer
integrated core software solutions and business services, and a full digital suite for the property and
casualty/general insurance; life, pension and annuities; and reinsurance markets. Sapiens also services
the workers’ compensation and financial and compliance markets.
Our portfolio includes policy administration, billing and claims; underwriting, illustration and electronic
application; reinsurance and decision management software. Sapiens’ digital platform features
customer and agent portals, and a business intelligence platform. With a 30-year track record of
delivering to more than 400 organisations, Sapiens’ team of over 2,500 operates through our fully-
owned subsidiaries in North America, the United Kingdom, EMEA and Asia Pacific. For more information:
www.sapiens.com.
Contact us
For more information, please visit us or contact us at:
www.sapiens.com
Tel: +972-3-790-2010
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